Iain Martin is a political commentator, and a former editor of The Scotsman and former deputy editor of The Sunday Telegraph. He is the author of Making It Happen: Fred Goodwin, RBS and the men who blew up the British economy, published by Simon & Schuster.. As well as this blog, he writes a column for The Sunday Telegraph. You can read more about Iain by visiting his website

British banking is still not fixed

The Co-op bank is in a bit of bother. As Robert Peston points out, this is an early test for the Government's new regulatory set-up and the last thing the Chancellor, George Osborne, needs right now is a major accident in a bank. It is doubly embarrassing because some of those in government – notably Vince Cable – had such high hopes of the Co-op. Its expansion was seen as providing a potential model for the future. Did that blind the authorities to what was going on?

The troubles of the Co-op are a reminder that even though it will be five years this autumn since the peak of the financial crisis, British banking is still not fixed. Despite various inquiries and reports (although there was never a proper public inquiry into the boom and subsequent blow-up of British banking) the banking system remains a major problem.

For the last couple of years I've been immersed in this subject writing a book about Fred Goodwin, the Royal Bank of Scotland and the mistakes which led to to the biggest corporate disaster in British history. "Making It Happen: Fred Goodwin, RBS and the men who blew up the British economy" is being published this autumn by Simon & Schuster.

It charts how RBS grew rapidly from a small Scottish bank with a proud history until it was, briefly, the biggest bank in the world by balance sheet. Its eventual rescue cost the British taxpayer many tens of billions, and the problems in the banking system played a leading role in tipping the UK into its worst downturn in seven decades. Other British banks blew up in 2008, but the explosion at RBS was by far the biggest and most costly.

Making It Happen is the inside story based on more than 80 interviews with insiders. It would be too easy, however, to pretend that this is all about Goodwin's mistakes. The story is told against a backdrop of calamitous errors made by policy-makers and politicians who thought they were operating in a new paradigm. And then it turned out that boom and bust had not been ended after all.

The book also explores the question of how British banking became so extraordinarily big relative to the rest of the economy. Do we need institutions that are so vast that when they fail they can do such damage to the rest of the economy?

Ironically, what is going on at the Co-op helps makes the case for smaller and more manageable banks. Its current difficulties might be deeply embarrassing for the Government and worrying for customers. But whatever the eventual outcome, the Co-op bank is only a tiny institution. Its troubles will not blow up the economy.